On Thursday, the United States is set to place 25 percent tariffs on $16 billion worth of Chinese goods. In response, China is expected to add 25 percent tariffs on an equal amount of U.S. goods. Even as Trump champions a strong U.S. economy, the escalation of the tit-for-tat trade war will cause Americans even more economic pain and is not the best way to counter unfair trade practices.
Tariffs are best understood as self-imposed sanctions – literally making goods more expensive and inflicting harm on our own economy. Since many of the items that Americans purchase come from abroad, specifically China, those goods become more expensive when the U.S. charges a higher tariff. On top of that, although a tariff may protect a few jobs in targeted industries, it hurts every job that relies on products produced by those industries. Companies now have to pay more to obtain the raw materials they need. That is all bad news for economic growth.
Adding to existing tariffs, which are already hurting U.S. producers and consumers in industries ranging from brewers, to agriculture, to textiles, and many others, isn’t going to help anyone.
In fact, Trump knows this. That’s why he created a plan to give a bailout to the tune of $12 billion to farmers adversely impacted by the trade war. That means that the U.S. is spending tax payer dollars to fix a problem it created.
The real kicker though is that tariffs, although they might hurt the Chinese economy, probably aren’t going to persuade Beijing to change its practices and will thus result in a stalemate where people on both sides of the Pacific are worse off.
The good news is that Trump doesn’t have to play chicken with Beijing to counter China’s unfair trade policies. Here are some ideas of better ways to do that:
- One way would be to apply pressure through existing international organizations such as the World Trade Organization. Although my friend and colleague Tom Rogan might disagree with me, China’s membership in the WTO gives a clear and transparent dispute resolution mechanism through which China can be held accountable for unfair practices. Moreover, as an international body, member nations already have an existing method through which pressure can be applied to ensure that Beijing follows the international norms and rules of trade. Finally, to address Rogan’s point directly, kicking China out could have unintended consequences — Beijing work likely work to solidify its own trade agreements and networks far from U.S. control and under the guiding hand of the Chinese Communist Party.
- Another option is to target specific Chinese firms that are misusing U.S. technology with sanctions. The U.S. Commerce Department has already done this against firms that were, for example, using ill-gotten U.S. technology for military uses. This strategy, unlike tariffs, is a targeted solution to a specific problem that does not take the rest of the economy down.
- Finally, another option would be to invest more in U.S. development. China’s ambition to dominate the high-tech developments of the future is well known. No trade war can prevent this. The only way for the U.S. to stay ahead of Beijing is with developments of our own. Funding investment and education in science and technology would be a far better use of resources that waging an unproductive trade war.
As Washington spins with the latest news that Paul Manafort and Michael Cohen are both guilty, remembering that the Trump administration’s reach extends beyond the Beltway is essential. An escalating trade war has serious consequences not just for the president but for business and individuals.
